GLOBAL PV MANUFACTURING ATTRACTIVENESS INDEX 2015 (PVMAX) Executive Summary

Transcription

1 2015, GLOBAL PV MANUFACTURING ATTRACTIVENESS INDEX 2015 (PVMAX) October 2015 Mohit Anand, Senior Analyst Solar Markets

2 Contents Contents , Greentech Media, Inc. All Rights Reserved. October

3 List of Figures List of Figures Figure 1.1 Module Excess Capacity Ratio...4 Figure 1.2 Global Share of New Module Manufacturing Capacity (in MW) Announced Year-to-Date...5 Figure 1.3 Global PV Manufacturing Attractiveness Index: Top 10 Country Rankings , Greentech Media, Inc. All Rights Reserved. October

4 Introduction Figure 1.1 Module Excess Capacity Ratio The global solar market has grown accustomed to a persistent oversupply of PV modules, thanks to an enormous glut at the beginning of this decade, culminating in excess capacity of over 90% in But two factors are changing that paradigm. First, consolidation and facility closures tightened the supply picture as module prices fell in , alleviating the worst of the oversupply. Second, we expect global PV demand to increase substantially over the next five years, leading to a 135 GW market in 2020, with an upside scenario of 4 GW or more. Even when accounting for already-planned module capacity additions, this could lead to a supply crunch toward the end of the decade. Whereas an ideal market has excess module capacity of between 30% and 70% 1, our base case forecast results in 26% excess capacity in 2017 a scenario that would likely lead to price pressure and potential module shortages in some markets. Module Supply Shortfall Source: GTM Research, PV Pulse Q The relatively high tolerance for module excess capacity can be explained due to the presence of cost-uncompetitive capacity (thin film), less bankable suppliers, capacity over-reporting and lower fixed costs. 2015, Greentech Media, Inc. All Rights Reserved. October

5 This suggests an opportunity for module suppliers to further expand production. And while much of this expansion may come from the current market leaders (largely Chinese manufacturers), it also presents an opportunity for new entrants to scale up. This trend has not gone unnoticed by PV manufacturers. Until September this year, many suppliers including major Chinese ones such as Trina Solar, Jinko Solar and JA Solar announced close to 6.6 GW of new module manufacturing capacity to be completed over the next several years. Importantly, all the announcements were for module capacity outside of China in countries including the U.S., India, Thailand, South Korea, Malaysia, Taiwan and Brazil. In the coming years, a combined 77% is slated for manufacturing just in India and the rest of Asia. Figure 1.2 Global Share of New Module Manufacturing Capacity (in MW) Announced Year-to-Date 9% 9% 3% 32% India Thailand 1% 5% South Korea Malaysia Taiwan 7% Europe United States 16% 18% Brazil RoW Source: GTM Research To some extent, such decisions are driven by the desire to avoid anti-dumping duties against Chinese manufactured cells and modules in major markets like the U.S. and Europe. However, these announcements also highlight the increasing geographic diversification of regional demand centers led by the current and planned deployment of large-scale solar in emerging solar markets like India, Saudi Arabia, Turkey, South Africa, Brazil, Mexico, Chile and Australia, and even new ones within Europe like Romania, the Czech Republic, Denmark and the Netherlands. With demand spreading wider than large one-stop markets like China, Japan, Germany and the U.S., there is a strong case for new capacity to be built in closer proximity to these new demand centers. This is especially relevant because regionalization brings with it advantages of reduced transportation costs, quicker turnaround in supply, and fewer delivery delays. These gains can often outweigh those associated with lower input costs in one particular country, something that is otherwise typically prioritized as a key factor in decisions on manufacturing locations. 2015, Greentech Media, Inc. All Rights Reserved. October

6 Many new demand centers are also looking to bolster domestic manufacturing by creating some form of local content requirement or manufacturing incentive both of which make them attractive new manufacturing destinations. In India, for example, the National Solar Mission has mandated the use of locally produced modules for up to 3 GW of projects. In Brazil, projects using locally manufactured modules can access lowcost financing from BNDES, the Brazilian Development Bank, providing a major viability leverage for projects looking to compete in the country s solar auctions. Moving manufacturing to these demand centers early can provide significant immediate upside and long-term strategic depth for players The PV Manufacturing Attractiveness Index With several contenders for new manufacturing locations, domestic PV demand cannot be the only criterion upon which decisions pertaining to new locations for manufacturing are based. In a bid to attract foreign investment and increase local employment, many countries are proactive and far-reaching in the direct manufacturing incentives they offer, extending to solar. The business environment and cost-competitiveness of countries can be other crucial factors determining their competitiveness or attractiveness for new solar manufacturing. Many countries have little domestic demand but are highly competitive for manufacturing based on the ecosystem they offer. Their access to demand at a regional, and to some extent, global level can make them ideal locations for manufacturing. These and other factors need to be analyzed to arrive at a systematic assessment of the top manufacturing locations for PV globally. This report provides a PV manufacturing attractiveness index for countries around the world. The index focuses on a shortlist of 50 countries selected on the basis of demand availability and experience with high-tech manufacturing. These 50 countries have been assessed for PV manufacturing attractiveness based on the following key measures and relative weights: 1. Business environment 10% 2. Access to demand 40% 3. PV manufacturing support 15% 4. All-in costs 35% Factoring in criteria fundamental to the solar industry as well as pertaining to the broader manufacturing ecosystem, this index is meant to help manufacturers select their next site and enable countries to improve their standing Key Findings The solar industry has long focused on cheap input costs to keep manufacturing costs low. The most attractive countries for manufacturing have been the ones most competitive on all-in costs. This is now changing many companies have more cash as margins from module sales have improved over the past two years for some, and many have realized significant returns from downstream project development. Manufacturers are investing in manufacturing automation to achieve cost reductions through efficiency gains. They are also leveraging scale to achieve efficiencies on the procurement of materials and equipment. Low input costs, thus, may no longer be the primary driving factor in manufacturing competitiveness. 2015, Greentech Media, Inc. All Rights Reserved. October

7 Our analysis suggests that low input costs are still an important factor in determining manufacturing attractiveness. However, having ready access to the most sizable demand has become a more pressing priority. Companies are now looking to set up manufacturing in locations that provide the closest proximity to the largest available demand so that they can avoid shipping costs and provide better sales service to their customers on the ground. Priority is also being given to shorter lead times, faster turnarounds on replacements, and less damage from shorter distances traveled and less handling during shipment. Moving beyond input-driven cost reductions to compete purely on price per unit, manufacturers are also focusing on technology innovation to reduce production costs, as well as to improve module efficiencies. There are two key competitive strategies either reduce prices for customers by passing on innovative cost reductions, or improve energy yields from the modules while leaving prices untouched. Tied to this new competitiveness paradigm, manufacturers are much more interested in understanding the kind of manufacturing support they can get from a country. This can span direct incentives that can reduce their overhead, a strong and rapidly expandable supply chain that can support large-volume sourcing, access to human capital that is capable of achieving innovations in manufacturing, and an excellent logistics network that can facilitate their customer service priorities. A healthy business environment that can make new plant development easier is also being considered more favorably. The preference is for an environment that can support the quick and hassle-free setup of new capacity, along with providing security against political and economic upheaval. Another preference is for readily available low-cost financing to overcome the constrained global availability of affordable capital, especially for renewables. Keeping this in mind, here is a ranking of the top 10 countries in the PV manufacturing attractiveness index and their ranks across the measures of attractiveness. 2015, Greentech Media, Inc. All Rights Reserved. October

8 Figure 1.3 Global PV Manufacturing Attractiveness Index: Top 10 Country Rankings Source: GTM Research Asian countries dominate in solar manufacturing attractiveness globally. The top three are China, Singapore and Taiwan because of strong regional demand, well-developed supply chains, and low all-in costs. The United States is also a leader, ranked fifth, as it provides significant access to demand tied to strong domestic demand, as well as access to markets globally, attractive support for PV manufacturing, and an excellent business environment. India's position at No. 6, despite a weak business environment, logistics, and supply chain, highlights its strength as a demand center with low costs and attractive incentives. The top 10 rankings also include Malaysia, Thailand, South Korea, Canada and Germany, each carrying weight in terms of cost-competitiveness and support for PV manufacturing. The top 10 countries in the index are categorized as Leaders. Unsurprisingly, Leaders have by far the largest combined PV manufacturing capacity in There is nonetheless great variation in scores between the top and bottom Leaders. China s domestic demand, for example, is larger than Germany s by over 20 GW, even in 2020, and its current labor costs are one-seventh of those found in Germany. The next 20 are Hopefuls, with an expected combined manufacturing capacity of only 7.4 GW in They can become Leaders by some combination of increasing support for manufacturing, growing their domestic 2015, Greentech Media, Inc. All Rights Reserved. October

9 markets, and reducing all-in costs tied to solar manufacturing. Italy, for example, only offers research and development-related tax incentives, whereas Germany goes so far as offering subsidized loans and cash incentives for new manufacturing irrespective of R&D efforts. Slightly higher-ranked Switzerland, for example, has the most expensive labor and land rates of all the countries in this analysis. Those with low manufacturing support scores can move ahead relatively easily compared to those held back on account of higher costs. The last 20 are Laggards, with a combined PV manufacturing capacity of only 1.9 GW expected in 2016 owing primarily to very small domestic demand. Mozambique, for example, has no domestic demand and the bottom 10 combined muster up not more than 1.4 GW of average demand between now and 2020 compared to the 3 GW that Germany alone offers as a Leader. While increasing demand drastically in a short time span is a difficult prospect for such countries, they can move significantly ahead by improving their manufacturing ecosystems. Laggards can easily become Hopefuls by improving manufacturing support. Romania, currently ranking 33rd, for example, is close behind Italy in access to demand, offers better incentives than Italy, and can catch up by supporting a local supply chain and improving the training of its workforce. The index categories are based on scores on a scale of 1 to 10. Figure 1.4 Index Categories and 2016 Expected Module Manufacturing Capacity Total Scores (1-10) Leaders 2016E Capacity = 86.1 GW Hopefuls 2016E Capacity = 7.4 GW Details Available in the Full Report Laggards 2016E Capacity = 1.9 GW China Singapore Taiwan Malaysia United States India Thailand Canada South Korea Germany Indonesia Saudi Arabia Japan Australia Denmark United Kingdom Chile Israel Brunei Darussalam Vietnam Turkey Netherlands Spain Philippines Portugal Mexico South Africa Poland Switzerland Italy France Ireland Romania Sweden Morocco Czech Republic Egypt Russia Finland Brazil Hungary Costa Rica Kazakhstan Belgium Iceland Austria Estonia Ukraine Greece Mozambique Source: GTM Research A number of European countries like Denmark, the United Kingdom, the Netherlands, Spain, Portugal, Poland, Switzerland and Italy make it to the top 30 as Hopefuls supported by access to demand in 2015, Greentech Media, Inc. All Rights Reserved. October

10 Europe, Turkey and Russia, strong ties to global trade flows, excellent business environments, and top-ofrange support for PV manufacturing. Overall, most European countries fail to make the cut as Leaders due to very high all-in costs. Chile and Mexico are the only two Latin American countries in the Hopefuls category due to very strong cost-competitiveness and growing domestic and regional demand. Despite strong access to markets and excellent manufacturing incentives, Brazil, a country that has seen some new manufacturing set up recently (albeit at small scale), lags far behind at number 40. Manufacturing plans for the country thus far are exceptions, tied to downstream activities of integrated players like SunEdison that are striving to make their project development plans viable by setting up local manufacturing. As per our analysis, Brazil is not a systemically attractive country due to a very weak business environment, high all-in costs, and a relatively inadequate local supply chain. Figure 1.5 Leaders Scores Across Measures of Attractiveness Leaders stand well ahead of Hopefuls and Laggards in the index, but their ranks within the top 10 are tenuous when considering their positions relative to each other across the measures of attractiveness. Scores (1-10) Details Available in the Full Report China Singapore Taiwan Malaysia United States India Thailand Canada South Korea Germany Business Evironment Access to Demand PV Manufacturing Support All-in Cost Competitiveness Total Score Source: GTM Research China faces stiff competition from Singapore, Taiwan, Malaysia and the U.S. on business environment and PV manufacturing support scores. As widespread manufacturing support like low-cost loans and cheap land for solar manufacturing by the government, especially for domestic companies, scales back, China runs the risk of slipping from the top-ranked position. It is unlikely, though, that China could lose its 2015, Greentech Media, Inc. All Rights Reserved. October

11 spot to the U.S., as the former enjoys a significant cost advantage and the U.S. s economic structure makes it unlikely that its manufacturing costs could fall drastically. Very strong domestic demand also stands to decrease as an advantage for China as other Asian majors begin to take advantage of the overall increase in regional demand led by India and followed by Thailand, Australia and Malaysia. The U.S. s top-of-pack position on PV manufacturing support sets it up as a Leader in global manufacturing attractiveness despite its relatively weak all-in cost-competitiveness. Enjoying strong demand at the moment, it will likely fall in attractiveness as its domestic demand scales back in 2017 owing to the drop in the Investment Tax Credit. Its excellent business environment performance, beaten only by Singapore, ensures that it is significantly ahead in the Leaders rankings than a hitherto major manufacturer like Germany, which is as much lacking in cost-competitiveness and does as well in manufacturing support as the U.S. India s bottom-of-pack score in business environment, a characteristic for which it is notorious, is more than compensated for by its cost-competitiveness. While business environment is not a key factor in improving overall scores, India s overall ranking stands to benefit from the perceived improvement in its business climate under the current Bharatiya Janata Party government. Its middle-of-range supply chain and improved incentives over the past year for semiconductor manufacturing have left India scoring better than expected on PV manufacturing support, despite a largely constrained logistics network. With domestic demand expected to strengthen over the coming years, India is a top contender to rise up the ranks of Leaders in manufacturing attractiveness. Thailand, Canada and South Korea each make it as Leaders because of competitive all-in costs relative to the countries outside the top 10. They have similar access to demand that is modest in the Leaders pack, marginally more than a modest demand center like Taiwan and short of India and Singapore. Canada, with close proximity to the U.S., a similar business environment, and better costcompetitiveness, can easily rise up the ranks if it improves its support for PV manufacturing. South Korea and Thailand, despite being in the top 10, are crowded out by leading countries that are in their immediate neighborhood. To be picked out as manufacturing locations, they will have to break into the top five. Both have to do much more in providing better support for PV manufacturing. Germany s excellent support for PV manufacturing, coupled with a top-of-range business environment ensures, that it is strongly positioned in the top 10 and faces little competition from countries immediately outside the Leaders category. With access to demand on par with most other countries in the top 10, Germany is at the bottom of the pack only because of its relatively weak cost-competitiveness. With little room to improve its cost-competitiveness due to entrenched high taxes and an economic structure geared toward high labor costs, Germany has limited wiggle room to rise up the ranks of Leaders. Matching Canada, the U.S. and Singapore in business environment scores can consolidate Germany s position in the top , Greentech Media, Inc. All Rights Reserved. October

12 Solar Research Global PV Manufacturing Attractiveness Index 2015 (PVMAX) Mohit Anand Senior Analyst, Solar Markets Single Site License* $2,995 Enterprise License** $4,995 *Single Site License permits no more than five users to share a report at a single company site. The report may not be distributed to other locations or offices within in company. *Enterprise License is for organizations with multiple research users. Enterprise license customers are permitted to share this report internally, among multiple locations within their organizations, and host the report on an Intranet and make it accessible to employees. The report may not be shared with outside entities. PAYMENT METHOD PREFERRED FORMAT Credit Card: Amex Mastercard Visa PDF Hardcopy (plus $150.00) BILLING INFORMATION Name Street Company City State Country Zip/Postal Code Phone Number Credit Card Number Expiration* CW* Signature Total (including shipping) to be charged $ * Expiration and CVV are required for all credit card purchases. For more information, please visit To place your order, fax this form to: Ken Marini, To purchase a subscription, please contact a member of our sales team, via details below, or visit Mohit Anand Senior Analyst, Solar Markets anand@gtmresearch.com Zack Munsell Research Sales Associate zmunsell@gtmresearch.com